In other words, there is a duty of care towards anyone who is reasonables foreseeable as likely to be harmed by carelessness.
A similar liability was imposed upon a distributor who re-bottled defective hair-dye (Watson v. Buckley (1940)) and upon manufacturers who failed to rinse out a chemical from fabric
from which they made underpants. The chemical was harmful to a small minority of persons, and caused the plaintiff to contact dermatitis.
DUTY OF CARE IN RELATING PURE ECONOMIC LOSS
The major steps taken by the courts to increase the range of liability were taken in 1963, in the case Hedley Byrne & Co v Heller and Partners. Respectively, the former decision generalized the conditions of liability for negligence misstatement, a party who provides incorrect or false information, where it is reasonably foreseeable that it will be acted on, could be liable for losses suffered as a result of that reliance.
The Hedley Byrne case is especially important. For a long time, the concept of duty of care in relation to pecuniary injuries arose only in respect of acts not to respect to words. This case further illustrated that negligence which results in purely financial loss is actionable. In addition, there also might be liability for negligent advice or misrepresentation if responsibility was not disclaimed.
We must also bear in mind the Caparo principles which have risen from the case of Caparo Industries PLC. V Dickman. The case determined that shareholders and investors can not be found in breach of a duty owed to the company auditor. In this case, the company auditor does not deduce the “special relationship” to the member at large, such as the public investors and shareholders; therefore, the courts held that no duty of care owed in this circumstances.
Under the Caparo principle, there are three stages of rules outlined by the law of tort, which must be revealed by the defendant to be liable for economic loss leading from negligent advice. These are the following:
- foresee abilities of damage,
- a special relationship of proximity,
- fair, just and reasonable of recognising such duties.
This principle being universal for all negligence cases, a follow up by Lord Oliver describes situations where the second rule can be manipulated to relate these rules to misstatement cases.
The case of Henderson v Merrett, arose out of the losses suffered by Lloyds’ names, all the investors in Lloyd’s list. The House of Lords held that Lloyd’s underwriters’ agent, Merrett Syndicates was liable to both shareholders and invertors. The underwriters’ agent disagreed that the position should be governed by the term of the contract law rather by the law of tort.
However, Lord Goff bought up the case of Hedley Byrne; and argued the fact that a defendant ought to know or must know that their advice will be replied upon serves to limit the scope of liability claimants.
Prior to Henderson, there had been other winning cases for examples, Junior Books, Smith v Eric S Bush and Spring v Guardian Assurance occurring which were also dealing with such matters. In each of these cases, the plaintiff’s were successfully recovered by the courts.
In Smith v Eric S Bush, Mrs Smith paid for a house valuation report. To enable the plaintiff to buy the house, the report had been prepared on the instructions of a building society, which granted a mortgage to the plaintiff, secured on the house. The plaintiff bought the property in reliance to the report having paid the building society in relation to the report. For that reason, duty of care is owed to the plaintiff.
DUTY OF CARE IN RELATING NEIGHBOURHOOD PRINCIPLE
The first case to establish the general principle which is to consider whether a duty of care should be owed in the tort of negligence was presented in the case as Donoghue v Stevenson , in which Lord Atkin defined the neighbour test.
In Donoghue v Stevenson case, we have seen that no action lies for negligence to feelings. However, a woman’s body may be affected via her emotions; very real physical symptoms
are suffered by “shock” cases. The ease with which such symptoms can be fabricated has caused the law to approach this type of injury with caution.
In the case of Boardman v. Sanderson, a father suffered from emotional crisis when the defendant proceeded to reverse the car out and inattentively trapped the boy’s foot under a wheel. Immediately, the father suffered shock resulting in seeing the child with his foot trapped. This case was later decided by the courts that the plaintiff could recover damages.
The court of Appeal in the same way discharged the claim of a mother, in the case of King v Phillips who heard a child’s scream, rushed to the window and saw a taxi back into the child’s tricycle some distance up the road. In fact, the child was hardly hurt at all, and ran home, but the mother suffered shock.
Another successfully recovered case by the House of Lords, the case of McLoughlin v O’Brian, when a mother, a person of reasonable fortitude, was actually at home, two miles away her husband and three of their children were involved in a serious road accident. One daughter died immediately and an hour after the accident, the mother saw the member of her family in hospital, an experience which caused her extreme distress.
As a result of hearing of the accident and seeing its results for herself, the mother suffered severe and persisting nervous shock. The defendant owed the plaintiff a duty of care even though the mother was not at or near the scene when it happened.
CONCLUSION
Cases in negligence which were causing pure economic loss were eventually treated as a separate branch of negligence. When the tort of negligence was developed in Donoghue v Stevenson and subsequent cases, it aim was to provide a remedy for negligence causing physical damage, which was later known as the neighborhood principle.
A pure economic case relating in law of tort, Caltex oil Pty Ltd v The Dregde Willemstad, this case happened in Australia where the courts decided to recover the loss of benefits to the property not in the position of the plaintiff.
Nevertheless, I have given several cases where the law of tort is essentially recovering cases due to economic losses in negligence. The courts believed that it was always the role of contract, since, in claims for economic loss what has really been suffered is not a loss but a failure to make a gain.
However, some cases fall under both contract law and tort law, for example the case of Henderson v Merrett. Therefore, the courts commonly look at the view that the true role of tort is to compensate those who have made a loss, damage and causing physical injury.
BIBLIOGRAPHY
Books
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J. S. Colyer and M.A.J. Farndale, A modern view of the low of torts (First edition, 1966) 36.
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W. H. van Boom, Helmut Koziol and Christian A, Pure economic loss (2004) 141-2.
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Mark Lunney and Ken Oliphant, Tort Law: Text & Materials (3rd ed, 2008) 116.
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Barbara Ann Hocking and Alison Smith, Liability for negligent words (1999) 70-3.
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Vivienne Harpwood, Principles of Tort Law (4th ed, 2000) 83-5.
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D.G.Cracknell, Law students’ Companion (1955) 98-9.
Case Law
- Donoghue v Stevenson [1932] AC 562.
- Watson v Buckley Osborne Garrett & Co Ltd and Wyrovoys Products Ltd [1940] 1 All ER 174.
- Hedley Byrne & Co Ltd. v Heller & Partners Ltd. [1964] AC 465.
- Caparo Industries PLC. v Dickman [1990] 2 AC 605.
-
.
- Junior Books v Veitchi Co LTD [1983] 1 AC 520.
- Smith v Bush [1990] 1 AC 831.
- Spring v Guardian Assurance PLC [1995] 2 AC 296.
- Boardman v Sanderson [1964] 1 WLR 1317.
- King v. Phillips [1953] 1 Q.B. 429, 441.
- McLoughlin v O’brian [1982] 2 ALL ER 298.
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Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 51 ALGR 270.
Other Sources
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ELMAS, “Eco-Legal and Management Advisory Services Limited’, (2001) <> at 3 June 2009
J. S. Colyer and M.A.J. Farndale, A modern view of the low of torts (First edition, 1966) 36.
W. H. van Boom, Helmut Koziol and Christian A, Pure economic loss (2004) 141-2.
Mark Lunney and Ken Oliphant, Tort Law: Text & Materials (3rd ed, 2008) 116.
Donoghue v Stevenson [1932] AC 562.
Donoghue v Stevenson [1932] AC 562.
Watson v Buckley Osborne Garrett & Co Ltd and Wyrovoys Products Ltd [1940] 1 All ER 174.
Watson v Buckley Osborne Garrett & Co Ltd and Wyrovoys Products Ltd [1940] 1 All ER 174.
Hedley Byrne & Co Ltd. v Heller & Partners Ltd. [1964] AC 465.
Barbara Ann Hocking and Alison Smith, Liability for negligent words (1999) 70-3.
Caparo Industries PLC. v Dickman [1990] 2 AC 605.
Vivienne Harpwood, Principles of Tort Law (4th ed, 2000) 83-5.
Hedley Byrne & Co Ltd. v Heller & Partners Ltd. [1964] AC 465.
Junior Books v Veitchi Co LTD [1983] 1 AC 520.
Smith v Bush [1990] 1 AC 831.
Spring v Guardian Assurance PLC [1995] 2 AC 296.
Smith v Bush [1990] 1 AC 831.
Donoghue v Stevenson [1932] AC 562.
Donoghue v Stevenson [1932] AC 562.
Boardman v Sanderson [1964] 1 WLR 1317.
King v. Phillips [1953] 1 Q.B. 429, 441.
J. S. Colyer and M.A.J. Farndale, Above n 1, 105.
McLoughlin v O’brian [1982] 2 ALL ER 298.
D.G.Cracknell, Law students’ Companion (1955) 98-9.
Donoghue v Stevenson [1932] AC 562.
Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 51 ALGR 270.